Sanofi-Aventis to buy Genzyme for $20.1 billion

Deal calls for $74 a share, plus CVR worth up to $14 a share

By

ValBrickates Kennedy

PolyaLesova

BOSTON (MarketWatch) — Sanofi-Aventis SA’s months-long quest to acquire biotech blue chip Genzyme Corp. met with success early Wednesday, with the two companies announcing that Genzyme had finally agreed to be bought for $20.1 billion in cash and a contingent value right of up to $14 a share.

Shares of Genzyme
GENZ
were up 1.5% at $75.48 in afternoon trading. Sanofi
SNY, -0.72%
shares gained 1% to rest at $34.76.

The companies said in a joint statement that Sanofi-Aventis will pay $74 a share for Genzyme. In addition to that cash payment, Genzyme shareholders will receive a contingent value right, or CVR, for each share they own, entitling holders to receive more cash payments if certain product milestones are met.

The CVR component, which is worth up to an additional $14 a share, is linked to the performances of the drugs Fabrazyme, Cerezyme and Lemtrada. Read more on CVRs.

The boards of both companies have approved the deal, which is expected to close early in the second quarter of 2011.

Based in Cambridge, Mass., Genzyme is best known for developing therapies for rare diseases for which few treatments are available.

During a press conference at Genzyme’s headquarters early Wednesday, Sanofi Chief Executive Officer Christopher Viehbacher said his company intends to keep Genzyme’s Massachusetts operations largely intact. He added that it was in Sanofi’s interests to maintain a strong presence in the Boston area, one of the world’s top biotechnology research centers.

Genzyme CEO Henri Termeer, meanwhile, confirmed that he plans to retire from management once the merger is completed, but will serve as an adviser on integration issues.

The deal is anticipated to add to Sanofi’s earnings per share in the first year after closing, and will add €0.75 to €1.00 a share by 2013, it said.

“This transaction will create a meaningful new growth platform for Sanofi-Aventis while expanding our footprint in biotechnology,” said Viehbacher in the statement.

“We expect it to be accretive from year one, and the CVR structure, which served as an important value bridge between our two companies, rewards both Genzyme and Sanofi-Aventis shareholders, particularly if Lemtrada outperforms the market’s current expectations,” he said.

Putting a price on Lemtrada

Genzyme has been testing Lemtrada, also known as alemtuzumab, for the treatment of multiple sclerosis. Alemtuzumab is already on the market for the treatment of leukemia under the brand name Campath.

Genzyme has asserted that if approved for multiple sclerosis, Lemtrada would become a blockbuster product, with some analysts projecting peak sales of about $3.5 billion. Sanofi has said it believes the drug’s prospects are exaggerated.

Genzyme confirmed Wednesday that it plans to release preliminary results from its first Phase III trial for Lemtrada in mid-2011, and results from a second Phase III trial in the latter half of the year.

The companies said the CVR agreement calls for Genzyme shareholders to receive the following milestone payments: $1 per CVR if Genzyme meets certain production levels for its drugs Fabrazyme and Cerezyme in 2011; $1 per CVR if Lemtrada wins U.S. regulatory approval for MS; $2 per CVR if net sales of Lemtrada exceed $400 million “within specified periods per territory”; $3 if global net sales of Lemtrada surpass $1.8 billion; $4 if net sales exceed $2.3 billion; and $3 if net sales surpass $2.8 billion.

Sales of Genzyme’s two best-selling products, Fabrazyme and Cerezyme, were severely disrupted last year due to contamination problems at a key Genzyme plant that resulted in chronic shortages of the products. The company is currently in the process of shifting its manufacturing operations in order to restore production levels.

In its fourth-quarter earnings report, also released Wednesday, Genzyme said that Cerezyme sales bounced to $222 million, up from $105 million in the 2009 period. Fabrazyme sales were still depressed, rising to $61.6 million from $58 million.

Sanofi shares rally in Europe

“Conclusion of the Sanofi-Genzyme saga is a positive outcome for Sanofi shareholders, in our view, and likely to result in relief that management has remained diligent in its view of the appropriate valuation,” Deutsche Bank said in a note to clients, reiterating its buy rating on the French firm.

“The deal adds a leading growth platform in rare diseases, improving Sanofi’s U.S. presence, diversifying its business, and potentially leveraging the areas of Genzyme which lack critical mass (such as oncology),” the broker said.

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